Section 232 Semiconductor Tariffs Could Undermine US Economic Growth

In January 2026, the Trump administration began implementing a new round of Section 232 tariffs on semiconductors, semiconductor machinery, and downstream technology goods, citing national security concerns. The first phase imposed a 25 percent tariff on a narrow subset of semiconductors, while the second phase is expected to sharply raise tariff rates and introduce an offset program to reward firms investing in U.S. semiconductor production.

While it is critical for the United States to strengthen its domestic semiconductor industry, a blanket tariff on semiconductors and downstream goods would ultimately achieve the opposite of what the administration intends, weakening U.S. growth, raising prices for consumers, and undermining American artificial intelligence (AI) leadership.

Because semiconductors are foundational inputs across nearly every modern industry, even a relatively narrow tariff can ripple throughout the broader economy. A blanket 25 percent tariff on semiconductors alone would reduce U.S. gross domestic product (GDP) growth by 0.2 percent in the initial year, equivalent to more than $58 billion. If this tariff were kept in place for over 10 years, GDP would fall by a cumulative $1.6 trillion. (See figure 1.) The effect of these tariffs would, of course, be worsened if the duty were raised above 25 percent. A 50 percent tariff on semiconductors would cause U.S. GDP to decline by more than $122 billion in the first year of implementation and by a cumulative $4.4 trillion over 10 years.

Figure 1: Cumulative lost GDP from a 25 percent tariff on semiconductor imports (2025 dollars)

This foregone growth would mean lower living standards for Americans. The Information Technology and Innovation Foundation (ITIF) estimates that Americans’ per capita GDP would be $170 lower in the first year after a 25 percent tariff on semiconductors took effect. By the 10th year, that decline would reach nearly $5,000. In other words, the average American would lose nearly $5,000 in cumulative living-standard gains over the decade.

Should the Trump administration impose tariffs on semiconductor machinery or other downstream products containing semiconductors, the cost to American families and the broader economy would be substantially greater.

But what does this decline in GDP and GDP per capita really mean? A higher sticker price for semiconductors would raise prices for consumers across a wide range of products. Several everyday essentials that rely on chips, including cell phones, laptops, cars, and home appliances, would become more expensive as firms grapple with rising input costs. The car industry, for example, would be highly affected, as modern vehicles contain between 1,000 and 3,000 semiconductors.

These tariffs would also hit at a particularly sensitive moment for the electronics market. In the first quarter of 2026, prices for random-access memory (RAM) chips surged by 90 percent, already driving up costs for products such as personal computers, laptops, and smartphones. An additional tariff on semiconductors would exacerbate these cost increases.

Unlike other products, American firms cannot simply shift their supply chains to source from domestic semiconductor producers. The United States accounts for just 12 percent of global semiconductor production, prompting domestic firms to import the vast majority of their chips. And despite announcements of semiconductor fabs being built across the country, most are years away from becoming operational. Firms will be forced to continue importing semiconductors at higher prices, passing much of that cost on to the consumer.

Beyond consumer goods, semiconductors are essential for the build-out of AI infrastructure across the United States. Leading U.S. technology firms have invested billions of dollars in hyperscale data centers to expand the country’s AI capabilities, cloud computing capacity, and technological leadership. Those hyperscale data centers require hundreds of thousands of semiconductors.

A broad semiconductor tariff would either curtail the construction of future data centers or drastically increase construction and operational costs, costs which would once again be passed on to consumers. Because AI infrastructure is increasingly tied to productivity growth, military applications, and long-term technological competitiveness, higher semiconductor costs could weaken one of the United States’ most important sectors.

This outcome would also undercut the administration’s national security justification. While national security concerns surrounding semiconductor supply chains can be legitimate, broad semiconductor tariffs threaten to weaken the very technological leadership that underpins U.S. national security, particularly in an era when economic strength and geopolitical influence increasingly depend on advanced computing and AI capabilities.

The second phase of the tariff plan also includes a tariff offset program intended to reward companies that have invested in U.S. semiconductor manufacturing by offering a lower effective tariff rate. However, major questions remain regarding eligibility, implementation, and the scale and quantity of the offsets. At a minimum, the administration should ensure that firms investing in AI infrastructure—not just semiconductor fabrication—are eligible for tariff offsets.

Firms investing in AI infrastructure, including data centers, have become major drivers of U.S. economic growth. In 2025, capital spending on AI provided a lifeline for the U.S. economy, accounting for about 1.2 percent of GDP. At a time when AI investment is one of the largest drivers of private sector capital investment, increasing hardware costs risk slowing productivity gains and stifling growth across the economy.

An overly strict semiconductor tariff regime would ultimately undermine economic growth, weaken U.S. technological competitiveness, and raise costs for both firms and consumers. The Trump administration should act with restraint and, rather than impose stricter tariffs on semiconductors, remove the current 25 percent tariff rate on chips. Better yet, the Trump administration should abandon its pursuit of semiconductor tariffs altogether.